NCLT Mumbai Orders Income Tax Dept To Lift Lien On Deep Star Alloys Bank Accounts During Moratorium

The Mumbai Bench of the National Company Law Tribunal (NCLT) has directed the Income Tax Department to lift the lien on the bank accounts of Deep Star Alloys and Steels Private Limited, which is currently undergoing insolvency proceedings, making it clear that once a moratorium is in force, no action can be taken against the company's assets under any other law.

The bench recorded:

“Accordingly, we are of the view that claim of the Income Tax Department having been already admitted by the RP, the Income Tax Department as Operational Creditor cannot continue its recourse of attaching the Bank Account of Corporate Debtor”

The order was passed by Judicial Member Nilesh Sharma and Technical Member Charanjeet Singh Gulati on a plea moved by the company's Resolution Professional.

The Resolution Professional had approached the tribunal after finding that the company's accounts with Punjab National Bank and Indian Bank remained frozen.

Both banks had declined to allow operations, pointing to a lien marked by the Income Tax Department, despite repeated requests to lift it.

Deep Star Alloys and Steels had been admitted into insolvency on February 28, 2024. The tax department, in the meantime, filed a claim of a little over Rs. 312 crore, which was admitted during the process.

Even after notices were served, none of the respondents appeared before the Tribunal or filed any reply, and the matter proceeded without their participation.

The bench noted that under the Insolvency and Bankruptcy Code, it is the Resolution Professional who must take control of all assets of the company, including money lying in bank accounts.

Once the moratorium kicks in, the law bars any authority from taking action against those assets under other statutes, the Tribunal said, pointing to the overriding effect of the Code.

It also referred to an earlier ruling in Om Prakash Agarwal v. Tax Recovery Officer, where it was held that money in a company's bank account continues to be its asset even if it has been attached.

Taking note of these principles, the tribunal directed the Income Tax Department to remove the lien within 30 days. If no communication is received within that time, the banks have been told to allow the Resolution Professional to operate the accounts in any case.

Advocate Raina Birla appeared for the Resolution Professional.